Chapter XXVIII. How the profit system nullified the benefit of inventions

"The general subject of the hostility of private capitalism to progress," pursued the teacher, "divides itself, as I said, into two branches. First, the constitutional antagonism between a system of distinct and separate vested interests and all unsettling changes which, whatever their ultimate effect, must be directly damaging to those interests. We will now ask you, Harold, to take up the second branch of the subject--namely, the effect of the profit principle to minimize, if not wholly to nullify, the benefit to the community of such inventions and improvements as were able to overcome the antagonism of vested interests so far as to get themselves introduced. The nineteenth century, including the last quarter of the eighteenth, was marked by an astonishing and absolutely unprecedented number of great inventions in economic processes. To what was this outburst of inventive genius due?"

"To the same cause," replied the boy, "which accounts for the rise of the democratic movement and the idea of human equality during the same period--that is to say, the diffusion of intelligence among the masses, which, for the first time becoming somewhat general, multiplied ten-thousandfold the thinking force of mankind, and, in the political aspect of the matter, changed the purpose of that thinking from the interest of the few to that of the many."

"Our ancestors," said the teacher, "seeing that this outburst of invention took place under private capitalism, assumed that there must be something in that system peculiarly favorable to the genius of invention. Have you anything to say on that point beyond what has been said?"

"Nothing," replied the boy, "except that by the same rule we ought to give credit to the institutions of royalty, nobility, and plutocracy for the democratic idea which under their fostering influence during the same period grew to flowering in the great Revolution."

"I think that will do on that point," answered the teacher. "We will now ask you to tell us something more particularly of this great period of invention which began in the latter part of the eighteenth century."

HAROLD STATES THE FACTS.

"From the times of antiquity up to the last quarter of the eighteenth century," said the lad, "there had been almost no progress in the mechanical sciences save as to shipbuilding and arms. From 1780, or thereabouts, dates the beginning of a series of discoveries of sources of power, and their application by machinery to economic purposes, which, during the century following, completely revolutionized the conditions of industry and commerce. Steam and coal meant a multiplication of human energy in the production of wealth which was almost incalculable. For industrial purposes it is not too much to say that they transformed man from a pygmy to a Titan. These were, of course, only the greatest factors in a countless variety of discoveries by which prodigious economies of labor were effected in every detail of the arts by which human life is maintained and ministered to. In agriculture, where Nature, which can not be too much hurried, is a large partner, and wherein, therefore, man's part is less controlling than in other industries, it might be expected that the increase of productive energy through human invention would be least. Yet here it was estimated that agricultural machinery, as most perfectly developed in America, had multiplied some fifteenfold the product of the individual worker. In most sorts of production less directly dependent upon Nature, invention during this period had multiplied the efficiency of labor in a much greater degree, ranging from fifty and a hundred-fold to several thousand-fold, one man being able to accomplish as much as a small army in all previous ages."

"That is to say," said the teacher, "it would seem that while the needs of the human race had not increased, its power to supply those needs had been indefinitely multiplied. This prodigious increase in the potency of labor was a clear net economic gain for the world, such as the previous history of the race furnished nothing comparable to. It was as if God had given to man his power of attorney in full, to command all the forces of the universe to serve him. Now, Harold, suppose you had merely been told as much as you have told us concerning the hundredfold multiplication of the wealth-producing power of the race which took place at this period, and were left, without further information, to infer for yourself how great a change for the better in the condition of mankind would naturally follow, what would it seem reasonable to suppose?"

"It would seem safe to take for granted at the least," replied the boy, "that every form of human unhappiness or imperfection resulting directly or indirectly from economic want would be absolutely banished from the earth. That the very meaning of the word poverty would have been forgotten would seem to be a matter-of-course assumption to begin with. Beyond that we might go on and fancy almost anything in the way of universal diffusion of luxury that we pleased. The facts given as the basis of the speculation would justify the wildest day-dreams of universal happiness, so far as material abundance could directly or indirectly minister to it."

"Very good, Harold. We know now what to expect when you shall go on to tell us what the historical facts are as to the degree of improvement in the economic condition of the mass of the race, which actually did result from the great inventions of the eighteenth and nineteenth centuries. Take the condition of the mass of the people in the advanced countries at the close of the nineteenth century, after they had been enjoying the benefits of coal and steam, and the most of the other great inventions for a century, more or less, and comparing it with their condition, say, in 1780, give us some idea of the change for the better which had taken place in their economic welfare. Doubtless it was something marvelous."

"It was a subject of much nice debate and close figuring," replied the boy, "whether in the most advanced countries there had been, taking one class with another, and disregarding mere changes in fashions, any real improvement at all in the economic basis of the great majority of the people."

"Is it possible that the improvement had been so small that there could be a question raised whether there had been any at all?"

"Precisely so. As to the English people in the nineteenth century, Florence has given us the facts in speaking of the effects of foreign commerce. The English had not only a greater foreign commerce than any other nation, but had also made earlier and fuller use of the great inventions than any other. She has told us that the sociologists of the time had no difficulty in proving that the economic condition of the English people was more wretched in the latter part of the nineteenth century than it had been centuries previous, before steam had been thought of, and that this was equally true of the peoples of the Low Countries, and the masses of Germany. As to the working masses of Italy and Spain, they had been in much better economic condition during periods of the Roman Empire than they were in the nineteenth century. If the French were a little better off in the nineteenth than in the eighteenth century, it was owing wholly to the distribution of land effected by the French Revolution, and in no way to the great inventions."

"How was it in the United States?"

"If America," replied the lad, "had shown a notable improvement in the condition of the people, it would not be necessary to ascribe it to the progress of invention, for the wonderful economic opportunities of a new country had given them a vast though necessarily temporary advantage over other nations. It does not appear, however, that there was any more agreement of testimony as to whether the condition of the masses had on the whole improved in America than in the Old World. In the last decade of the nineteenth century, with a view to allaying the discontent of the wage-earners and the farmers, which was then beginning to swell to revolutionary volume, agents of the United States Government published elaborate comparisons of wages and prices, in which they argued out a small percentage of gain on the whole in the economic condition of the American artisans during the century. At this distance we can not, of course, criticise these calculations in detail, but we may base a reasonable doubt of the conclusion that the condition of the masses had very greatly improved upon the existence of the popular discontent which they were published in the vain hope of moderating. It seems safe to assume that the people were better acquainted with their own condition than the sociologists, and it is certain that it was the growing conviction of the American masses during the closing decades of the nineteenth century that they were losing ground economically and in danger of sinking into the degraded condition of the proletariat and peasantry of the ancient and contemporary European world. Against the laborious tabulations of the apologists of capitalism we may adduce, as far superior and more convincing evidence of the economic tendency of the American people during the latter part of the nineteenth century, such signs of the times as the growth of beggary and vagabondage to Old World proportions, the embittered revolts of the wage-earners which kept up a constant industrial war, and finally the condition of bankruptcy into which the farming population was sinking."

"That will do as to that point," said the teacher. "In such a comparison as this small margins and nice points of difference are impertinent. It is enough that if the indefinite multiplication of man's wealth-producing power by inventive progress had been developed and distributed with any degree of intelligence for the general interest, poverty would have disappeared and comfort if not luxury have become the universal condition. This being a fact as plain and large as the sun, it is needless to consider the hairsplitting debates of the economists as to whether the condition of this or that class of the masses in this or that country was a grain better or two grains worse than it had been. It is enough for the purpose of the argument that nobody anywhere in any country pretended that there had been an improvement noticeable enough to make even a beginning toward that complete transformation in the human condition for the better, of which the great inventions by universal admission had contained the full and immediate promise and potency.

"And now tell us, Harold, what our ancestors had to say as to this astonishing fact--a fact more marvelous than the great inventions themselves, namely, their failure to prove of any considerable benefit to mankind. Surely a phenomenon at once so amazing in itself and involving so prodigious a defeat to the hopes of human happiness must have set a world of rational beings to speculating in a very impassioned way as to what the explanation might be. One would suppose that the facts of this failure with which our ancestors were confronted would have been enough to convince them that there must be something radically and horribly wrong about any economic system which was responsible for it or had permitted it, and that no further argument would have been wanted to induce them to make a radical change in it."

"One would think so, certainly," said the boy, "but it did not seem to occur to our great-grandfathers to hold their economic system to any responsibility for the result. As we have seen, they recognized, however they might dispute as to percentages, that the great inventions had failed to make any notable improvement in the human condition, but they never seemed to get so far as to inquire seriously why this was so. In the voluminous works of the economists of the period we find no discussions, much less any attempt to explain, a fact which to our view absolutely overshadows all the other features of the economic situation before the Revolution. And the strangest thing about it all is that their failure to derive any benefit worth speaking of from the progress of invention in no way seemed to dampen the enthusiasm of our ancestors about the inventions. They seemed fairly intoxicated with the pride of their achievements, barren of benefit as they had been, and their day dreams were of further discoveries that to a yet more amazing degree should put the forces of the universe at their disposal. None of them apparently paused to reflect that though God might empty his treasure house for their benefit of its every secret of use and of power, the race would not be a whit the better off for it unless they devised some economic machinery by which these discoveries might be made to serve the general welfare more effectually than they had done before. They do not seem to have realized that so long as poverty remained, every new invention which multiplied the power of wealth production was but one more charge in the indictment against their economic system as guilty of an imbecility as great as its iniquity. They appear to have wholly overlooked the fact that until their mighty engines should be devoted to increasing human welfare they were and would continue mere curious scientific toys of no more real worth or utility to the race than so many particularly ingenious jumping-jacks. This craze for more and more and ever greater and wider inventions for economic purposes, coupled with apparent complete indifference as to whether mankind derived any ultimate benefit from them or not, can only be understood by regarding it as one of those strange epidemics of insane excitement which have been known to affect whole populations at certain periods, especially of the middle ages. Rational explanation it has none."

"You may well say so," exclaimed the teacher. "Of what use indeed was it that coal had been discovered, when there were still as many fireless homes as ever? Of what use was the machinery by which one man could weave as much cloth as a thousand a century before when there were as many ragged, shivering human beings as ever? Of what use was the machinery by which the American farmer could produce a dozen times as much food as his grandfather when there were more cases of starvation and a larger proportion of half-fed and badly fed people in the country than ever before, and hordes of homeless, desperate vagabonds traversed the land, begging for bread at every door? They had invented steamships, these ancestors of ours, that were miracles, but their main business was transporting paupers from lands where they had been beggared in spite of labor-saving machinery to newer lands where, after a short space, they would inevitably be beggared again. About the middle of the nineteenth century the world went wild over the invention of the sewing-machine and the burden it was to lift from the shoulders of the race. Yet, fifty years after, the business of garment-making, which it had been expected to revolutionize for the better, had become a slavery both in America and Europe which, under the name of the 'sweating system,' scandalized even that tough generation. They had lucifer matches instead of flint and steel, kerosene and electricity instead of candles and whale-oil, but the spectacles of squalor, misery, and degradation upon which the improved light shone were the same and only looked the worse for it. What few beggars there had been in America in the first quarter of the nineteenth century went afoot, while in the last quarter they stole their transportation on trains drawn by steam engines, but there were fifty times as many beggars. The world traveled sixty miles an hour instead of five or ten at the beginning of the century, but it had not gained an inch on poverty, which clung to it as the shadow to the racer."

HELEN GIVES THE EXPLANATION OF THE FACTS.

"Now, Helen," pursued the teacher, "we want you to explain the facts that Harold has so clearly brought out. We want you to tell us why it was that the economic condition of humanity derived but a barely perceptible advantage at most, if indeed any at all, from an inventive progress which by its indefinite multiplication of productive energy should by every rule of reason have completely transformed for the better the economic condition of the race and wholly banished want from earth. What was there about the old system of private capitalism to account for a fiasco so tremendous?"

"It was the operation of the profit principle," replied the girl Helen.

"Please proceed with the explanation."

"The great economic inventions which Harold has been talking about," said the girl, "were of the class of what were called labor-saving machines and devices--that is to say, they enabled one man to produce more than before with the same labor, or to produce the same as before with less labor. Under a collective administration of industry in the equal general interest like ours, the effect of any such invention would be to increase the total output to be shared equally among all, or, if the people preferred and so voted, the output would remain what it was, and the saving of labor be appropriated as a dividend of leisure to be equally enjoyed by all. But under the old system there was, of course, no collective administration. Capitalists were the administrators, being the only persons who were able to carry on extensive operations or take the initiative in economic enterprises, and in what they did or did not do they had no regard to the public interest or the general gain, but to their own profit only. The only motive which could induce a capitalist to adopt an invention was the idea of increasing his profits either by getting a larger product at the same labor cost, or else getting the same product at a reduced labor cost. We will take the first case. Suppose a capitalist in adopting labor-saving machinery calculated to keep all his former employees and make his profit by getting a larger product with the same labor cost. Now, when a capitalist proposed to increase his output without the aid of a machine he had to hire more workers, who must be paid wages to be afterward expended in purchasing products in the market. In this case, for every increase of product there was some increase, although not at all an equal one, in the buying power of the community. But when the capitalist increased his output by the aid of machinery, with no increase in the number of workers employed, there was no corresponding increase of purchasing power on the part of the community to set off against the increased product. A certain amount of purchasing power went, indeed, in wages to the mechanics who constructed the labor-saving machines, but it was small in comparison with the increase in the output which the capitalist expected to make by means of the machinery, otherwise it would have been no object to him to buy the machine. The increased product would therefore tend directly to glut yet more the always glutted market; and if any considerable number of capitalists should introduce machinery in the same way, the glut would become intensified into a crisis and general stoppage of production.

"In order to avert or minimize such a disaster, the capitalists could take one or two courses. They could, if they chose, reduce the price of their increased machine product so that the purchasing power of the community, which had remained stationary, could take it up at least as nearly as it had taken up the lesser quantity of higher-priced product before the machinery was introduced. But if the capitalists did this, they would derive no additional profit whatever from the adoption of the machinery, the whole benefit going to the community. It is scarcely necessary to say that this was not what the capitalists were in business for. The other course before them was to keep their product where it was before introducing the machine, and to realize their profit by discharging the workers, thus saving on the labor cost of the output. This was the course most commonly taken, because the glut of goods was generally so threatening that, except when inventions opened up wholly new fields, capitalists were careful not greatly to increase outputs. For example, if the machine enabled one man to do two men's work, the capitalist would discharge half of his force, put the saving in labor cost in his pocket, and still produce as many goods as ever. Moreover, there was another advantage about this plan. The discharged workers swelled the numbers of the unemployed, who were underbidding one another for the opportunity to work. The increased desperation of this competition made it possible presently for the capitalist to reduce the wages of the half of his former force which he still retained. That was the usual result of the introduction of labor-saving machinery: First, the discharge of workers, then, after more or less time, reduced wages for those who were retained."

"If I understand you, then," said the teacher, "the effect of labor-saving inventions was either to increase the product without any corresponding increase in the purchasing power of the community, thereby aggravating the glut of goods, or else to positively decrease the purchasing power of the community, through discharges and wage reductions, while the product remained the same as before. That is to say, the net result of labor-saving machinery was to increase the difference between the production and consumption of the community which remained in the hands of the capitalists as profit."

"Precisely so. The only motive of the capitalist in introducing labor-saving machinery was to retain as profit a larger share of the product than before by cutting down the share of labor--that is to say, labor-saving machinery which should have banished poverty from the world became the means under the profit system of impoverishing the masses more rapidly than ever."

"But did not the competition among the capitalists compel them to sacrifice a part of these increased profits in reductions of prices in order to get rid of their goods?"

"Undoubtedly; but such reductions in price would not increase the consuming power of the people except when taken out of profits, and, as John explained to us this morning, when capitalists were forced by competition to reduce their prices they saved their profits as long as possible by making up for the reductions in price by debasing the quality of the goods or cutting down wages until the public and the wage-earners could be cheated and squeezed no longer. Then only did they begin to sacrifice profits, and it was then too late for the impoverished consumers to respond by increasing consumption. It was always, as John told us, in the countries where the people were poorest that the prices were lowest, but without benefit to the people."

THE AMERICAN FARMER AND MACHINERY.

"And now," said the teacher, "I want to ask you something about the effect of labor-saving inventions upon a class of so-called capitalists who made up the greater half of the American people--I mean the farmers. In so far as they owned their farms and tools, however encumbered by debts and mortgages, they were technically capitalists, although themselves quite as pitiable victims of the capitalists as were the proletarian artisans. The agricultural labor-saving inventions of the nineteenth century in America were something simply marvelous, enabling, as we have been told, one man to do the work of fifteen a century before. Nevertheless, the American farmer was going straight to the dogs all the while these inventions were being introduced. Now, how do you account for that? Why did not the farmer, as a sort of capitalist, pile up his profits on labor-saving machinery like the other capitalists?"

"As I have said," replied the girl, "the profits made by labor-saving machinery resulted from the increased productiveness of the labor employed, thus enabling the capitalist either to turn out a greater product with the same labor cost or an equal product with a less labor cost, the workers supplanted by the machine being discharged. The amount of profits made was therefore dependent on the scale of the business carried on--that is, the number of workers employed and the consequent figure which labor cost made in the business. When farming was carried on upon a very large scale, as were the so-called bonanza farms in the United States of that period, consisting of twenty to thirty thousand acres of land, the capitalists conducting them did for a time make great profits, which were directly owing to the labor-saving agricultural machines, and would have been impossible without them. These machines enabled them to put a greatly increased product on the market with small increase of labor cost or else the same product at a great decrease of labor cost. But the mass of the American farmers operated on a small scale only and employed very little labor, doing largely their own work. They could therefore make little profit, if any, out of labor-saving machinery by discharging employees. The only way they could utilize it was not by cutting down the expense of their output but by increasing the amount of the output through the increased efficiency of their own labor. But seeing that there had been no increase meanwhile in the purchasing power of the community at large, there was no more money demand for their products than before, and consequently if the general body of farmers through labor-saving machinery increased their output, they could dispose of the greater aggregate only at a reduced price, so that in the end they would get no more for the greater output than for the less. Indeed, they would not get so much, for the effect of even a small surplus when held by weak capitalists who could not keep it back, but must press for sale, had an effect to reduce the market price quite out of proportion to the amount of the surplus. In the United States the mass of these small farmers was so great and their pressure to sell so desperate that in the latter part of the century they destroyed the market not only for themselves but finally even for the great capitalists who conducted the great farms."

"The conclusion is, then, Helen," said the teacher, "that the net effect of labor-saving machinery upon the mass of small farmers in the United States was ruinous."

"Undoubtedly," replied the girl. "This is a case in which the historical facts absolutely confirm the rational theory. Thanks to the profit system, inventions which multiplied the productive power of the farmer fifteenfold made a bankrupt of him, and so long as the profit system was retained there was no help for him."

"Were farmers the only class of small capitalists who were injured rather than helped by labor-saving machinery?"

"The rule was the same for all small capitalists whatever business they were engaged in. Its basis, as I have said, was the fact that the advantage to be gained by the capitalists from introducing labor-saving machinery was in proportion to the amount of labor which the machinery enabled them to dispense with--that is to say, was dependent upon the scale of their business. If the scale of the capitalist's operations was so small that he could not make a large saving in reduced labor cost by introducing machinery, then the introduction of such machinery put him at a crushing disadvantage as compared with larger capitalists. Labor-saving machinery was in this way one of the most potent of the influences which toward the close of the nineteenth century made it impossible for the small capitalists in any field to compete with the great ones, and helped to concentrate the economic dominion of the world in few and ever fewer hands."

"Suppose, Helen, that the Revolution had not come, that labor-saving machinery had continued to be invented as fast as ever, and that the consolidation of the great capitalists' interests, already foreshadowed, had been completed, so that the waste of profits in competition among themselves had ceased, what would have been the result?"

"In that case," replied the girl, "all the wealth that had been wasted in commercial rivalry would have been expended in luxury in addition to what had been formerly so expended. The new machinery year by year would have gone on making it possible for a smaller and ever smaller fraction of the population to produce all the necessaries for the support of mankind, and the rest of the world, including the great mass of the workers, would have found employment in unproductive labor to provide the materials of luxury for the rich or in personal services to them. The world would thus come to be divided into three classes: a master caste, very limited in numbers; a vast body of unproductive workers employed in ministering to the luxury and pomp of the master caste; and a small body of strictly productive workers, which, owing to the perfection of machinery, would be able to provide for the needs of all. It is needless to say that all save the masters would be at the minimum point as to means of subsistence. Decaying empires in ancient times have often presented such spectacles of imperial and aristocratic splendor, to the supply and maintenance of which the labor of starving nations was devoted. But no such spectacle ever presented in the past would have been comparable to that which the twentieth century would have witnessed if the great Revolution had permitted private capitalism to complete its evolution. In former ages the great mass of the population has been necessarily employed in productive labor to supply the needs of the world, so that the portion of the working force available for the service of the pomp and pleasures of the masters as unproductive laborers has always been relatively small. But in the plutocratic empire we are imagining, the genius of invention, through labor-saving machinery, would have enabled the masters to devote a greater proportion of the subject population to the direct service of their state and luxury than had been possible under any of the historic despotisms. The abhorrent spectacles of men enthroned as gods above abject and worshiping masses, which Assyria, Egypt, Persia, and Rome exhibited in their day, would have been eclipsed."

"That will do, Helen," said the teacher. "With your testimony we will wind up our review of the economic system of private capitalism which the great Revolution abolished forever. There are of course a multitude of other aspects and branches of the subject which we might take up, but the study would be as unprofitable as depressing. We have, I think, covered the essential points. If you understand why and how profits, rent, and interest operated to limit the consuming power of most of the community to a fractional part of its productive power, thereby in turn correspondingly crippling the latter, you have the open secret of the poverty of the world before the Revolution, and of the impossibility of any important or lasting improvement from any source whatever in the economic circumstances of mankind, until and unless private capitalism, of which the profit system with rent and interest were necessary and inseparable parts, should be put an end to."